The land market and the precious metals market are equally susceptible to external factors of geopolitical unpredictability, and are similarly fueled by speculators and intermediaries. This allows the latter to foster unjustified expectations of price growth, while there are no real grounds for land plots to become more expensive in Ukraine under current conditions.
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This is reported in the UNIAN publication’s material “Not all land is gold.”
According to the authors, it is the intermediaries, who are interested in increasing the number of transactions, who spread weakly supported theses about land price increases within 15-20% per year (with real annual growth at the level of 5% over the last five years). “Among their promises to potential investors are integration into the EU (which should immediately lead to price growth through increased investment in the agricultural market and Ukraine’s post-war recovery in general), increased demand for food products, undervalued assets due to the war (automatic growth after its completion), increased demand for Ukrainian land due to climate change (although foreigners are prohibited from buying it), the possibility of preserving savings from inflation,” the material states. However, these forecasts are obviously baseless.
Both types of assets are influenced by non-obvious factors loosely related to their nature. “For example, for gold, geopolitical uncertainty is a ‘premium’, whereas for land, especially in Ukrainian realities, it is more of a ‘discount’: it is difficult to confidently cultivate a plot on which a rocket can fall at any moment or which can be occupied. The value of gold is influenced by interest rates, the development of innovative industries (as alternatives for investment), mining volumes, and commodity supercycles that last for decades. Similarly, the price of land is influenced by logistics, grain corridors, demining rates, access to water, soil quality, as well as regulatory factors – for example, the ban on sales to foreigners and the National Bank’s limit on the coefficient for issuing loans secured by land plots at 0.35 of the estimated value,” the authors note.
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“The price depends on the geographical location (further from the front, closer to resorts, fertility, the availability of large consolidated areas of quality plots, the absence of legal problems, demand for the produced products, etc.),” the publication adds. The “European” value of a hectare, which the “price optimists” on the land market so adhere to – and which can be 5-10 times higher than the price of a hectare in Ukraine – is formed, among other things, by the specific subsidy policy for the agro-sector in the European Union, the way it will be extended to Ukrainian farmers even in case of rapid accession to the community – is still an equation with many unknowns.
In addition, according to the authors of the material, both types of assets are “illiquid” in a physical sense. Unlike their “paper” counterpart (gold in an account, which is traded on exchanges every second), selling a bar profitably is a non-trivial task due to storage costs, authentication, and large dealer spreads (up to a 15% difference between purchase and sale).
“The same applies to land plots. In five years since the market opened, only a few percent of plots have changed owners. 1 million hectares of transactions – this is only 4% of the entire land mass that can be sold, while even in European countries, in an established market, selling 1-2% per year is considered normal. This means that sales of physical plots are progressing very slowly, and only in very investment-attractive and relatively safe regions (the price difference between the west and south of the country is up to 5 times). The average purchase transaction is 2-3 hectares, meaning that the real rapid ‘consolidation’ of land plots by agroholdings is clearly not happening,” the publication adds.
Companies that offer “consolidated packages” (i.e., “paper” ownership of plots) to retail investors through REIT funds create such unfavorable conditions for investors that real profits are simply out of the question. By the way, both gold and a land plot will obviously have to be sold significantly below market price in case of an urgent sale. “Another analogy: intermediaries are trying to make both one and the other ‘accessible to the mass investor,’ creating an illusion of ‘simplicity,’ ‘carefree management,’ ‘quick earnings,’ ‘reliable asset preservation’ with an entry threshold of $2-5 thousand. At the same time, it is obvious that in both cases, only these ‘dealers of promises’ will actually earn from this ‘hype’,” the authors note.
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